Housing Survey notes return of confidence

Normal service appears to be returning following post-September 2017 General Election weakness, according to our latest ASB Housing Confidence Survey.

The net balance of respondents expecting house prices to increase rose to 32%, back to where it was in the July 2017 survey, and well above October 2017 (+17%) and January 2018 (+16%) lulls. Auckland house price expectations (+19%) hit a 12-month high.

House price expectations remained the most bullish outside of Auckland and Canterbury, consistent with recent housing market data showing flat house prices in Auckland and Canterbury but still-sizeable increases elsewhere.

However, net balances were 10 percentage points lower than just 12 months ago (+42%), suggesting we are past for peak for house price increases.

Reasons for cooling

The cooling in price expectations could be linked to stretched housing affordability and respondents’ uncertainty over the impact of the Government’s new housing policies. Many respondents continued to expect higher interest rates over the next 12 months, with little change compared to the previous survey.

This was despite recent falls to carded fixed mortgage interest rates and likely reflects the expectation that the RBNZ will eventually lift the Official Cash Rate (OCR) from record lows. The majority of respondents still view it not to be a good time to buy a new house.

Considering the sizeable run-up of house prices in recent years and stretched affordability, this was perhaps understandable.

Net balance negative

However, in our recent survey the net balance (-6%) was the least negative in two years. Canterbury (+6%) was the only region where the majority of respondents consider it a good time to buy, with the net balance for the region the highest since the devastating earthquakes in early 2011.

Given their recent resurgence in house prices, net balances were the most negative in the rest of the North Island (-10) and the Rest of the South Island (-7%).

Price expectations lift

The net balance of respondents expecting house prices to rise lifted to 32% in the most recent survey from the mid-2011 lull of 16% in January.

Net balances were still well below the +42% this time last year.

A breakdown of the nationwide figures for the most recent quarter showed: (a) 46% of respondents to the ASB survey expect higher prices, while 13% expect prices to fall (it was 36% and 20% last quarter); (b) On balance, a net 32% expect higher prices (was 16% last quarter); (c) 27% expect no change in prices (29% last quarter); while 15% don’t know (was 14%).

Improvement was evident for all of the broad regions in the survey.

Whilst having the lowest net balance of the regions, price expectations hit a 12- month high in Auckland (+19%). Canterbury expectations firmed, but at +21% remained below the nationwide average for the 14th consecutive quarter.

Price expectations remained more upbeat in the rest of the South Island (+45%) and the rest of the North Island (+43%), with net balances for these two regions having taken the top spot over the last three years.

The chart here shows the rebound in nationwide and regional house price expectations.

This has occurred during a period in which annual increases in the Real Estate Institute of New Zealand nationwide House Price Index have remained in the low single digits.

Too early to predict

It is too soon to tell if firming house price expectations will translate into observed house price increases, particularly with still considerable uncertainties over the impact of proposed government policy changes.

What has remained evident, however, is that regional house price expectations from our survey have tended to reflect recently observed house price developments.

Less upbeat house price expectations for Auckland and Canterbury are consistent with broadly flat observed house prices.

Conversely, stronger house price expectations for the rest of the country are consistent with sizeable house price increases observed outside of the major urban areas.